Module 6

Problem 1. The following information is for a product manufactured and sold by Rivera
Corporation:

Sales price per unit, $30
Variable cost per unit, $20
Total fixed costs, $200,000
Last year, Rivera earned a profit of $60,000

Required:
1) How many units did Rivera sell last year?
2) Rivera's managers are considering decreasing the sales price to $28 in an effort to increase
market share. Also, the company wants a profit of $80,000. How many units would it have to sell
at the lower selling price to achieve this target?

Problem 2. The management accountant at Melrose, Inc. provided the following estimated costs
for producing 5,000 units of a specialty product manufactured by the firm:

The company believes that direct labor hours are the most appropriate cost driver for assigning
overhead costs to its product.
Required:
1) Compute the predetermined overhead rate for this company.
2) Compute the specialty product's total estimated cost per unit.
3) Why do firms assign overhead costs using a predetermined overhead rate instead of assigning
actual costs?

Module 7

Problem 1. Ortiz Manufacturing is considering developing and marketing one of two new
products, A and B. It has accumulated the following information about the two products:

Required:
1) Which of these items are relevant to Ortiz's decision about which of these products it will
launch?

Problem 2. Mae Lee owns a small retail store in Cairo, Georgia. The following summary
information regarding expectations for the month of January is provided: As of December 31
there is $500 in the bank and the balance in accounts receivable is $2,500. Budgeted cash and
credit sales for January are $3,000 and $2,000, respectively. Ninety percent of credit sales are
collected in the month of sale and the remainder is collected in the following month. Mae's
suppliers do not extend credit. Cash payments for January are expected to be $12,000. Mae has a
line of credit that enables the store to borrow funds on demand. However, funds must be
borrowed on the first day of the month and interest paid in cash on the last day of the month.
Mae desires to maintain a $500 cash balance before consideration is given to the payment of
interest. Mae's bank charges annual interest of 12% per year.
Required:
1) Compute the amount of funds that needs to be borrowed.
2) Compute the amount of interest expense that will appear on the January 31 pro forma income
statement.

Module 8

Problem 1. Creighton Company's balance sheet and income statement are provided below:

Required:
1) Compute the margin, turnover, and return on investment for Creighton Company.
2) What is the advantage of expanding the ROI formula to measure margin and turnover
separately?

Problem 2. Delta Company is evaluating two different capital investments, Project X and Y.
Either X or Y would cost $100,000, and the company cannot afford to do both. The company
expects that Project X would provide net cash inflows of $30,000 per year for 5 years. For
Project Y, the net cash inflows are expected to be as follows:

Delta's cost of capital is 12%
Required:
1) Calculate the present value index for Project X and for Project Y.
2) Indicate whether each of the projects is an acceptable investment.
3) Which of the two projects should Delta implement?